Articles

Written by: Kevin Stadler, Vice President of Sales and Marketing, SAF USA, Inc.

How to achieve the benefits of computer generated ordering with less risk

In recent years, many retailers, particularly in the U.S., have been skeptical about implementing large multi-year IT projects involving significant change in business processes. Included in this category is computer generated ordering (CGO). Historically, implementing CGO has been an "all or nothing" initiative which resulted in a high risk, high reward implementation. A few U.S. retailers have faltered on this route, causing others to ponder whether they want to take this course of action at all.

However, leading retailers implementing this strategy are coming closer to achieving the optimal supply chain, gaining a competitive advantage. These retailers indicate that their transformation to demand-driven replenishment provides a high return on investment. More specifically, reports indicate that a 0.5 to1.35 percent sales increase while decreasing inventory by 30 percent and reducing out-of-stocks up to 60 percent is quite common.

Unfortunately, many retailers who have yet to make the transformation do not realize that consumer demand-driven solutions have improved vastly in recent years, and the benefits of CGO can be achieved without the risk often associated with it.

Eliminating High Risk
The "all or nothing" method retailers previously implemented in the past is not necessarily the most efficient way to transition to CGO. For many, it is more feasible to take smaller steps to achieve better practices and reduce risk. This is true for two main reasons. First, a retailer can retrace its steps if it finds resistance in a particular area. Secondly, humans take a longer time to absorb business process change. By taking gradual steps, employees are more likely to adopt new practices incrementally than all at once.

CGO can be accomplished by taking gradual steps. Retailers should first deploy forecasted assisted ordering, then migrate to inventory augmented ordering and lastly implement full computer generated ordering.

Incremental Benefits with Incremental Changes

• Step 1: Forecasted Assisted Ordering

The first step to achieving the optimal order is by slightly modifying the in-store ordering procedure. The forecasted demand for the order period is presented to the order writer. This is best done with a handheld ordering unit but can also be accomplished with a new column on a report. Using this information in conjunction with a visual check of existing stock, the order accuracy improves radically. The improvement in-stock position creates improved sales and reduces out-of-stocks and over-ordering. With this first step, there is little business process change and only a minimal feed from the existing point-of-sale data to feed the forecast engine. Essentially the order writer can see what would need to be ordered for the replenishment cycle if the stock on hand was zero, then make adjustments based on the visual estimates of inventory.

• Step 2: Inventory Augmented Ordering

Further accuracy is gained by introducing inventory calculations into the process. A combination of factors can be used to assess the current amount of stock in hand. This process involves looking at historical order patterns and sales declines indicative of out-of-stock product and target shelf stock calculations from space management. Any or all of the latter can be used to gauge stock level with increased accuracy. This added information enables the order writer to automatically calculate and present a suggested order. This allows for a management by exception process that speeds the ordering process while providing even more accuracy than was achieved in step one. The order process is yet again only incrementally changed and the data requirements marginally increased.

• Step 3: Full Computer Generated Ordering

With the introduction of perpetual inventory, the ordering system is then turned on for full CGO capability. At this level, a number of business processes change. While there is a significant reduction in order process labor, there are added in-store processes for periodic inventory checks. As in almost all retail organizations from Sarbanes Oxley requirements, there are periodic inventory counts that cycle through all items and verify the in-stock position. At this level the perfect store order can be achieved optimizing service levels against inventory targets set by organization.

By transitioning to CGO following this three step guideline, retailers can gradually achieve benefits of the solution by alleviating the risk previously associated with the investment. Furthermore, retailers will achieve the ultimate benefit and maximize its return on investment by buying the correct stock based on the core source — the customer and its purchasing behavior.

Kevin Stadler is Vice President of Sales and Marketing for SAF USA, Inc. For more information, please visit www.saf-usa.com.

Free Retail Solutions Online Newsletter